Khashoggi murder is the latest in a long line of confidence shaking events to take place at the request of Crown Prince Mohammed Bin Salman.
The murder of Saudi journalist Jamal Khashoggi turned the world’s politicians against Crown Prince Mohammed Bin Salman, but private capital turned against him long before that.
According to a report by Bloomberg, money has been flooding out of Saudi Arabia ever since the prince ordered the detention of dozens of royals and leading business figures as part of a so-called “crackdown on corruption” in November 2017.
An investigation has found that a growing number of rich Saudis have been moving money out of the kingdom or drawing up plans to leave.
The Saudis who have stayed are mostly leaving the cash they cannot move instead of increasing investments, adding to the already troubled kingdom and its dwindling financial pot. Sources say Khashoggi’s killing was the last straw that could topple the regime over the edge.
The Crown Prince’s hold on the kingdom has so far survived the Khashoggi scandal, but losing the support of his people is a far worse situation. What’s more, this unease has reached foreign investors who are now less inclined to put their money into the prince’s projects.
Due to the crackdown on so-called corruption in 2017, which many believe was a desperate money grab by the kingdom to pump funds into a failing economy, confidence in the country has dropped to an all-time low. A boycott of neighbouring Qatar also led to a sense of unease across the kingdom.
Money leaving Saudi Arabia before corruption purge
Steffen Hertog, a Gulf specialist at the London School of Economics, said money was leaving the country before the corruption purge, partly because the economy slowed as authorities imposed austerity in response to low oil prices.
Compared to 2017, JPMorgan Chase & Co. estimate total outflows to rise 13 percent in 2018 to US$90 billion, about 10 percent of GDP.
Major banks have lowered their forecast for loans to businesses, a key gauge of domestic demand and private growth continues to slow even though oil prices are now slowly rebounding.
Lagging investment from both locals and foreigners, added to new taxes and fees on expats, has helped push unemployment to the highest level in more than a decade.
In an interview the day after Khashoggi disappeared, Prince Mohammed said the jobless rate will start to fall in 2019. He also predicted a rebound in foreign investment – starting with a sizable non-oil deal to be announced at the 2018 FII conference. But then the international outcry against Khashoggi began to build, prompting bankers and executives to drop out of the event and no announcement was made.
Rumours have been circulating in recent months that King Salman is planning to announce a new successor in early 2019, but it remains to be seen if even a drastic step like that can save the kingdom from the mess it now finds itself in.